Lies, Damn Lies, And Statistics: Social Security Edition

On his radio show yesterday, Rush Limbaugh claimed that Social Security is "unsustainable" because "we've gone from spreading out the burden of payment from 140 taxpayers to three and that number is getting smaller." But Robert Ball, former Commissioner of Social Security under Presidents Kennedy, Johnson and Nixon, has pointed out that this argument is "highly inaccurate."

Here's Rush claiming to burst his listeners' bubble on Social Security:

LIMBAUGH: Now, I'm sorry if this bursts your bubble. I am sorry if you think Social Security was a little bank account over there and it had your name on it and that when you turned 65 that money came back. That's not how it worked. Now here's the point. When it started it took the taxes of about 140 people to pay the benefits of one recipient. So that's spreading the burden out. You know what it is today? Three. It takes the taxes of 3 taxpayers to pay the benefits of one recipient. So we've gone from spreading out the burden of payment from 140 taxpayers to three. And that number is getting smaller and that's why this is unsustainable. So it has to be -- it has to be fixed.

And here's someone who actually knows what he's talking about. Ball, who worked on Social Security for nearly 30 years and served as Commissioner of Social Security for more than 10 years, has rebutted the charge that this statistic means that Social Security is unsustainable. In a 2004 article, Ball pointed out that the statistic is meaningless because "[t]o take this ratio-based argument to its illogical extreme, one could point out when Social Security first went into effect, in 1937, here were millions of workers per beneficiary -- since, in the beginning there were zero beneficiaries."

Ball added: "Obviously that ratio was going to change, however, and Social Security's designers fully anticipated such changes."

From Ball's article, titled "How to fix Social Security? It doesn't have to be hard":

In fact, however, the demographic changes that have been taking place throughout Social Security's history were anticipated and understood when the program was being established and have been taken into account in its funding ever since. Those who base their arguments for partial privatization on the disappearance of the 42-to-one ratio (or the 16-to-one ratio in 1950, a statistic often cited by President Bush) are contributing -- deliberately or otherwise -- to public confusion about the program's past, present and future.

To take this ratio-based argument to its illogical extreme, one could point out when Social Security first went into effect, in 1937, there were millions of workers per beneficiary -- since, in the beginning, there were zero beneficiaries. Obviously that ratio was going to change, however, and Social Security's designers fully anticipated such changes.

Any retirement system that requires contributions and work under the system as a condition for getting benefits takes a long time to be very effective. In the early years few of the elderly will meet the eligibility requirements because they are already retired and will not work again. Thus, even by 1950, 13 years after the first contributions began to be paid into Social Security, only about 15 percent of the elderly were getting benefits. Gradually, however, ever-higher proportions of those reaching retirement age were eligible -- and now just about all are.

Social Security was planned for the long run. It was not expected to do much in the early years (when there was much greater reliance on the means-tested old age assistance program) and the early ratios of workers to retirees had little relevance to the long-range cost estimates. The slow developent of Social Security toward a universal system has always been the basis for estimating its costs and determining its contribution rates. When the system was refinanced in 1983, the assumptions about the future ratios of workers to retired beneficiaries were about the same as the assumptions used today, and the cost of the future changes were fully provided for then -- and are fully provided for now.

The reasons why a long range deficit has re-emerged since 1983 are related entirely to other factors -- including, among other changes in the forecasting assumptions, a more pessimistic view of the future performance of the economy and a greater incidence of disability and related costs than previously estimated.

Moreover, Social Security will be able to pay full benefits until 2036. Even after that, Social Security will be able to pay three-quarters of scheduled benefits until 2085. The 2011 annual report on the Social Security trust fund states:

After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.

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